SEC Settlement
In June 2021, Ms. Kardashian posted an ad in an Instagram story for a crypto token known as EthereumMax or EMAX. Kardashian stated that the post was not financial advice and included the disclaimer “#AD” in the post, but did not disclose any further details about her remuneration for the promotion. The SEC settlement states that Kardashian was paid USD250,000 for the post.
According to the SEC, EMAX is a security because marketing materials and public statements of EMAX affiliates would lead purchasers of EMAX to expect to profit from their investment in the token based on the efforts of EMAX’s management. According to the SEC, then, EMAX is subject to the laws and regulations set forth in the Securities Act.
Ms. Kardashian’s promotion of EMAX was thus subject to the anti-touting provision in Section 17(b) of the Securities Act. Section 17(b) makes it unlawful for any person to:
“…publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof.”
In other words, when a person is paid to promote a security, they must disclose the amount they are being paid.
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